Thank You

Error.

David Rolfe's introduction to portfolio management came after a rocky start at the University of Missouri in 1980. Many students "went to the big party school, and they would come home with their tail between their legs," recalls Rolfe, now 52.

Count Rolfe among them.

Having washed out as an engineering student, Rolfe returned home and re-enrolled at the university's St. Louis campus, switching his focus to finance and economics. Rolfe signed up for an investing class, "and I was hooked the very first day," he says.

David Rolfe limits his RiverPark/Wedgewood fund to about 20 stocks. Risky? Maybe. But the fund has a strong record.
Paul Nordmann for Barron's

Rolfe hews to an investment philosophy that he began early in his career, managing money at a trust bank in St. Louis: He likes a very concentrated portfolio, now 21 holdings; low turnover, 20% last year; and above-average earnings growth without above-average pricing. Add to that a contrarian streak, such as making
AppleAAPL -0.8743973196044782%Apple Inc.U.S.: NasdaqUSD121.3
-1.07-0.8743973196044782%
/Date(1438376400350-0500)/
Volume (Delayed 15m)
:
41225145AFTER HOURSUSD121.45
0.150.1236603462489695%
Volume (Delayed 15m)
:
1659808
P/E Ratio
14.006928406466512Market Cap
691740216377.936
Dividend Yield
1.7147568013190437% Rev. per Employee
2409500More quote details and news »AAPLinYour ValueYour ChangeShort position
(AAPL) the fund's second-largest holding at a time when many growth managers have thrown in the towel on that stock.

The large growth-stock sector is a tough place in which to shine, given how many analysts and money managers follow these companies. But Rolfe "knows he's trafficking in an efficient, competitive space, and that he might not be able to out-trade, out-analyze" or get more information than some investors do, says Daniel Culloton, associate director of fund analysis at Morningstar. "But he can outwait people, focus on a small subset of companies, try to buy them at an inefficient price, and hold them for a long time." And that is what Rolfe does, with good results.

Launched 3½ years ago, the fund's three-year total return is 18.7%, besting the S&P 500 by 2.7 percentage points and putting it in the top 12% of Morningstar's large-cap growth category. Rolfe's track record for the same strategy in Wedgewood's separately managed accounts is similarly impressive, and goes back more than 20 years.

The biggest risk in such a concentrated fund—the top 10 holdings account for 60% of assets—is that one or two bad picks can stymie performance. But for Rolfe, a 22nd stock wouldn't add any meaningful diversification. "We don't own two or three mega-banks or two or three pharmaceutical companies," he says. "A portfolio of 20 businesses that have largely different business models and different paths to profitability is more than enough diversification."

So far, Rolfe's fund has shown that to be true: RiverPark/Wedgewood Retail has not been demonstrably more volatile than the broad market. One measure of a fund's riskiness is standard deviation, which analyzes volatility. This fund's standard deviation over three years is 12.6, barely higher than the S&P 500's 12.5, according to Morningstar.

Berkshire Hathaway
(BRK.B) is the fund's largest holding. Rolfe insists that Warren Buffett "has built an underappreciated, perpetually growing cash-generation machine," with underlying businesses—especially insurance, railroad freight, and manufacturing—that will "continue to prosper." Buybacks also play a big role: In his most recent letter to shareholders, Buffett noted that if the shares go down to 1.2 times book value, "we will be aggressive" in repurchasing stock. To Rolfe, that assurance offers plenty of downside protection. The B shares, he estimates, are worth at least $150, versus their recent price of $123.

Buffett himself was on the syllabus for the pivotal class that shaped Rolfe's investment philosophy and introduced him to big thinkers, such as Sir John Templeton, Benjamin Graham, David Dodd, and John Maynard Keynes. Rolfe began his career at PaineWebber, but he never settled into the role of a "transaction-oriented stockbroker," as he puts it. A high-conviction approach, culled from his studies, struck him as necessary "to have any chance to outperform."

In 1992, Rolfe joined Wedgewood Partners, a small money manager in the St. Louis area that was seeking a chief investment officer. Tony Guerrerio, president and CEO, hired the 30-year-old because his investing style dovetailed with the firm's view. "We are not overly concerned with short-term ups and downs, and Dave was right in line with that," says Guerrerio.

RiverPark/Wedgewood Retail

Total Returns*

1-Yr

3-Yr

5-Yr

RWGFX

25.9%

18.7%

N/A

S&P 500

23.2

16.0

N/A

% Of

Top 10 Holdings

Ticker

Portfolio**

Berkshire Hathaway

BRK.B

9.3%

Apple

AAPL

8.8

Express Scripts Holding

ESRX

6.6

Qualcomm

QCOM

6.2

Cognizant Tech Solutions

CTSH

5.9

EMC

EMC

5.8

M&T Bank

MTB

4.8

Cummins

CMI

4.4

Stericycle

SRCL

4.3

Perrigo

PRGO

4.2

Total:

60.3%

*All returns are as of 3/18/14; three and five year returns are annualized. ** as of 3/07/14. Source: Morningstar, Wedgewood Partners

Rolfe's style and success at Wedgewood got the attention of RiverPark Capital founders Morty Schaja and Mitch Rubin, who tapped him to subadvise one of their first funds. "You should be able to apply a value orientation to growth investing, and that's something David had been doing for 20-plus years," Schaja says.

That mindset led Rolfe to Apple. "Its growth rates hit a brick wall, and many growth managers have just thrown Apple into the dustbin of history, thinking it will never be a decent growth company again," says Rolfe, who disagrees, citing the company's successful rollout of the iPhone 5s and 5c. Plus, "Apple can buy back an enormous amount of shares," adds Rolfe, who puts Apple's fair value at $675, more than 25% higher than its recent price of $531.

Similarly, Rolfe likes the fiscally responsible
Express Scripts HoldingESRX -0.1994459833795014%Express Scripts Holding Co.U.S.: NasdaqUSD90.07
-0.18-0.1994459833795014%
/Date(1438376400129-0500)/
Volume (Delayed 15m)
:
3515957AFTER HOURSUSD90.05
-0.02-0.022204951704230043%
Volume (Delayed 15m)
:
300673
P/E Ratio
33.8609022556391Market Cap
60863092591.0245
Dividend Yield
N/ARev. per Employee
3473620More quote details and news »ESRXinYour ValueYour ChangeShort position
(ESRX), a pharmacy-benefit manager that paid $29 billion to buy Medco in 2012. The company is paying down debt and buying back shares, and the expected rollout of more generic drugs in the next few years will help its bottom line. "It's a unique situation—you can have flat revenue but double-digit earnings growth," Rolfe says. He argues that the stock is worth at least $90, versus $77 now.